Does TPR have equality, diversity and inclusion covered?

On 28 March 2023, The Pensions Regulator (TPR) published two sets of practical guidance – one aimed at trustees and the other at employers – to help improve equality, diversity and inclusion (EDI) on Trustee Boards.

In addition, the draft General Code makes reference to skills and experience diversity, particularly in the context of succession planning.

But for trustees who’ve made that important connection between board effectiveness and EDI there is an important extension and an elaboration to make to this picture.

An extension: There are three lenses of diversity

When we hear the term ‘diversity’, our minds can go to a very specific place. Usually to the protected characteristics that make up the spectrum of demographic diversity – so commonly age, gender and ethnicity.

A useful mental device to bring clarity and breadth is to always think, on hearing the term “diversity”, of the three lenses of diversity:

1. Skills and experience diversity
2. Demographic diversity
3. Behavioural or cognitive diversity

They are each important. They each vary in terms of how visible they are, how they’re measured and how ‘gaps’ are mitigated. And they’re non-correlated, so solving one doesn’t automatically mean you’ve solved the others. Let’s examine each in a bit more detail.

What do the stats say?

Our 2023 Governance Survey showed that schemes are getting to grips with the three lenses of diversity, but at different paces. Over two-thirds of schemes have already reviewed skills and experience diversity; half demographic diversity; and one third behavioural diversity. Conversely, nearly a third of schemes are planning to review behavioural diversity, a quarter are still planning to review demographic diversity, and 14% have yet, but are planning, to review skills and experience diversity.

An elaboration: Recruitment is one of several important mitigations

Boards can improve their diversity through careful, thoughtful recruitment over time – either by improving the way they recruit or select member-nominated trustees or by engaging in conversation with the sponsor on the sorts of gaps the board is looking to fill. But when we think about our three lenses of diversity and the variety within each of those lenses, we are never going to solve all diversity gaps, even if we had a board of 25 people.

There’s also the problem of actually being able to recruit across all your requirements. (As a side note, I firmly believe that recruiting diverse candidates isn’t hopeless, even when you have a shrinking, ageing or largely demographically homogeneous member population: there’s no silver bullet, but there are a wide range of tweaks that can be made to a recruitment approach and how its communicated that together can make enough of a difference to have a genuine choice between diverse candidates. As a guiding principle, you must let the members you reach out to know that the role needs someone like them.)

But, still, recruitment isn’t and can’t be the only answer to having diverse inputs to improve your board’s effectiveness. Other supplementary mitigations include:

• Seeking to understand your fellow trustees better, including their diversity characteristics across the three lenses, and embedding activities in your meetings and scheme calendar that build social capital
• Taking training, or supplementing for board gaps through your wider support team – including your adviser and provider teams and any pensions executive support
• Reviewing the membership of your sub-committees so that you have complementary inputs from different members of that sub-committee as well as making the most of relevant skills backgrounds from amongst your board. This could include leveraging the expertise that might be available within the sponsor
• Continuing to evolve the way meetings are run, structured and chaired, to mitigate for gaps and tendencies that might otherwise undermine effectiveness, and to consciously build up levels of social capital and thereby levels of trust, collaboration and innovation.

What do the stats say?

According to our 2023 Governance Survey, two thirds of schemes have taken at least one positive step to support trustee recruitment – examples include moving from election to selection, widening the eligible population, pipeline-building practices and reviewing communications. And many are planning or considering further change.

In addition, boards are reviewing their effectiveness more frequently, and are advancing from self-assessments to make greater use of independent reviews of board effectiveness. Our 2023 governance survey showed that 66% of schemes assess their effectiveness every year, with a third seeking external input at least every 2 or 3 years.

What should I do now?

We’ve covered quite a lot of ground here. Indeed, our starting point was that there are more boards could and should be doing, in the name of effectiveness, in addition to what TPR’s recent guidance and the General Code already cover. But much of the activity here is not onerous and can be tackled sequentially.

Please contact your WTW consultant or Jenny Gibbons if you would like more information on:

• Our skills, experience and demographic diversity questionnaires
• Reviewing behavioural diversity via psychometric assessment
• Taking introductory trustee board training on EDI
• Reviewing your member-nominated trustee recruitment approach and/or communications
• Undertaking a governance or board effectiveness review
• Support with understanding and meeting the requirements of the General Code
• The results of our governance survey 2023